Insiders bought a total of $1.39 billion worth of stock in 687 separate transactions, and they sold a total of $62.22 billion worth of stock in 477 separate transactions last week. Of this, the finance and transportation sectors accounted for 13% of the insider activity, with strong insider buying at shipping transportation services provider Overseas Shipbuilding Group (OSG) and private mortgage insurance provider Radian Group Inc. (RDN), and institutional insider selling activity trucking services provider YRC Worldwide Inc. (YRCW).
This report, part of our weekly coverage of insider trades by sector (based on last week’s SEC Forms 3, 4, and 5 filings), summarizes last week’s major insider filings in the finance and transportation sectors (for a general discussion on how to interpret insider trades, please look at the end of this article):
YRC Worldwide Inc. (YRCW): YRCW is an international provider of asset and non-asset based transportation services across the U.S., Puerto Rico, Canada, Guam and Mexico. Corporate insider, Catalyst Fund Limited Partnership II, managed by private equity owner Catalyst Capital Group Inc. out of Toronto, Canada, sold 8.8 million shares for $0.37 million last week. CGI, along with hedge fund Owl Creek Asset Management, have been active sellers of their YRCW holdings in the past weeks, having sold a total of over 55 million shares in the past few weeks, as summarized by us in our prior reports on weekly insider selling activity for the weeks ending November 11th, November 4th and October 28th.
Overseas Shipbuilding Group (OSG): OSG is a provider of shipping transportation services for crude oil and petroleum bulk products with a fleet of 106 vessels. Insiders currently hold 3.2 million shares or 10.6% of outstanding shares. During the last week, Director Fribourg purchased 200,000 shares, increasing his holdings to 1.71 million shares, and Director Zimmerman purchased 5,000 shares. This is a significant pick-up in insider buying, given that insiders bought only an additional 0.12 million shares in the remaining twelve weeks of the past three months (selling none).
Chimera Investment Corp. (CIM): CIM is diversified real estate investment trust investing in mortgage-backed securities, residential mortgage loans, commercial mortgage loans, real estate-related securities, and other asset classes. Insiders currently hold 1.7 million shares or 0.2% of outstanding shares. During the past week, Director Paul Donlin bought 100,000 shares, increasing his holdings to 602,667 shares. This is the first insider purchase since August, when seven insiders (including Mr. Donlin) bought a total of 229,000 shares, and a strong pick-up given that insiders bought only a total of 486,000 shares during the past year (selling none). CIM shares currently trade near three-year lows, and within striking distance of all-time lows, so the 100,000 share purchase by Director Donlin is a sign of confidence in the company.
Fifth Third Bancorp (FITB): FITB operates as a diversified financial services’ holding company, engaged in commercial, retail and trust banking, data processing services, investment advisory services and leasing activities via 1,312 centers in 12 states. Insiders currently hold 5.2 million shares or 0.6% of outstanding shares. During the past week, Director John Schiff bought 12,000 shares, increasing his holdings to 490,689 shares. This is in addition to the 10,000 shares purchased by CEO Kevin Kabat in mid-August, and is significant that the last time prior to CEO Kabat’s purchase that insiders bought FITB shares was in August of last year.
Radian Group Inc. (RDN): RDN offers private mortgage insurance for homeowners that put down less than 20% down payment when purchasing their homes. In addition, through its Financial Guaranty segment, RDN also insures and reinsures municipal bonds, structured finance transactions and other credit-based risks, as well as provides credit protection on various asset classes through financial guarantees and credit default swaps. Insiders currently hold 1.4 million shares or 1.0% of outstanding shares. During the past week, CEO Ibrahim and Director Spiegel bought a total of 25,000 shares. This is in addition to the 50,000 shares purchased by CEO Ibrahim just two weeks ago, and is significant given that insiders purchased a total of only 75,000 shares in the past three months and 301,370 shares in the past year (buying none).
Discussion on Insider Trading
The reports in this series identify last week’s insider trades of noteworthy significance by sector or industry group, either by virtue of their timing, their size, the number of insiders buying or selling, based on who is buying or selling, or by the trend of their buys and sales over the long-term. The rest of the series by sector and by week can be accessed from our author page.
What is Insider Trading?: Insider trading as defined here (and by the SEC) includes not just corporate insiders such as company executives and key employees, but also directors and large shareholders that have access to non-public information. Large shareholders are defined by the SEC for this purpose are those that having beneficial ownership of ten percent of more of the firm’s equity securities (including institutional investors). Also, in the U.S., “insiders” are not just limited to corporate officials and major shareholders, but also when a corporate insider “tips” a friend about material non-public information, the duty the corporate insider owes the company is now imputed to the friend who is now in violation of a duty to the company if he or she trades on the basis of that information. The U.S. is generally viewed as having the strictest laws against illegal insider trading, and makes the most serious efforts to enforce them.
While most insider trading is legal, the term is commonly used to refer to the illegal kind when a corporate insider trades based on material non-public information that can have an effect on the company’s share price. By law, insiders are prohibited from trading based on nonpublic information, but most believe that such trading does occur around the edges. The thinking goes that corporate insiders, because of their access, have the most up-to-date information on the health of their companies and the industries they operate in. Investors, as a result, can benefit from the timely knowledge of insider transactions. In fact, one University of Michigan study found that when executives bought shares in their own companies, the stocks tended to outperform the total market by 8.9% over the next 12 months. Conversely, when they sold shares, the stock underperformed by 5.4%.
Timeliness of Information: Like in the 13-D and 13-G filings for Institutions, the SEC Forms 3 and 4 on insider filings are extremely timely, and hence of greater significance, as they must be reported within two business days of the trade.
Insider Buying More Informative than Selling: As a rule, insider buys are more informative than sells. This is because insiders sell often, and they sell for a variety of reasons that may be completely unrelated to the health of the company, including, for example, to diversity their holdings or to pay for an upcoming personal expense. In contrast, insider buying is relatively uncommon, and since they have an exclusive window into their own company’s performance, it is reasonable to presume that they probably have good reasons based on information at their disposal when they are risking their own assets to buy company stock.
Regular and Automatic Trades: Insider trades maybe regular trades, or they may be automatic trades made under SEC Rule 10b5-1. It is generally believed that regular insider share purchases and sales carry more predictive value as they are made voluntarily by the insiders. Conversely, trades made under SEC Rule 10b5-1, called “Automatic Buys” and “Automatic Sells”, are part of a pre-determined plan or contract, and it is assumed that the plan was created before the insider had any privileged non-public information. Generally, almost all automatic trades are sells, not buys.
Furthermore, even automated trades made under 10b5-1 have some informative or predictive value due to loopholes in the rule that, for example, allow the insider to cancel the trading plan without any penalty or legal liability. So, the insider could set up a 10b5-1 trading plan before they have inside information (for example, from a quarterly report and guidance) while retaining the option to later cancel the plan based on the inside information. So, in effect, the execution of an automated trade also carries some predictive value as insiders retain the option under the existing rules to cancel their trades without penalty or legal liability.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.